From the following data, calculate the cost of capital for operations (WACC). Use the capital asset pricing
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U.S. Government long-term bond rate ....... 4.3%
Market risk premium .............. 5.0%
Equity beta .................. 1.3
Per-share market price ................ $40.70
Shares outstanding .............. 58 million
Net financial obligations on balance sheet . $1,750 million
Weighted-average borrowing cost ........ 7.5%
Statutory tax rate ............... 36.0%
Explain why the cost of capital for operations is different from that for equity.
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Capital Asset Pricing Model
The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. The CAPM is a model for pricing an individual security or portfolio. For individual securities, we make use of the security market line (SML) and its... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...
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By CAPM Equity cost of capital 43 13 50 108 Debt cost of capital 75 1 0...View the full answer
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